Saturday, November 19, 2005

A letter sent to the radio show hostsSo I just listened to a radio podcast on “The mysterious equation 14” and I have to say that the piece dates you in two big ways.

First of all, culturally, economics is still misunderstood, but no longer quite reviled. I am about to finish my PhD in economics, and when I tell people on airplanes, blind dates, etc. that I am an economist, there are only two possible responses: “So you want to be Alan Greenspan?” or “Do you have any stock tips?” So in today’s post-stockmarket bubble age where Greenspan is subject to hero worship, economics is misunderstood, but not so much boring anymore.

Also, as for a television show about economics, one actually exists, and is doing surprisingly well. The CBS show Numb3rs is in its second season and is one of the highest rated show in its timeslot (albeit Friday night, when only dorks are watching TV) and it is a standard cop/detective show, except the main character is a mathematician who solves crime by using math to predict human behavior. Basically, an economist. Most episodes use standard economic tools: game theory, Bayesian analysis, statistical regression, regression to the mean, social networks etc. I just wish people would understand this is not pure fantasy, and actual economists do this kind of thing all the time. I dream that maybe young people will be turned onto math and eventually economics by it.

The second way the piece dates you though is your economic analysis. So while I am perhaps one of the most neo-classically minded of my peers (my advisor is a Chicago school diehard), it seems that most economics of the past 30 years has been focused on identifying examples when trade is not beneficial, win-win, perhaps because as you say, the win-win situation is boring.

So to the first order you are perfectly right, markets work. However, arguably, in the cases you mention, the second order effects that cause markets to fail may come to dominate. Also, our economy seems to get most of the first order things right already, so it makes sense for people to focus on the second order effects.

Take your examples. The Toyota commercial does represent mutually beneficial exchange, but it also represents externalities, it represents preference shifts (which economics does not have a good handle on) which may be bad for society though welfare theory cannot handle it.

The idea that a company might not try to suppress the invention of a durable fabric in that Alec Guiness film is like that pernicious urban myth of the oil cartel conspiracy to squelch renewable energy. But still there are plenty of examples of planned obsolescence, of HP spending money to make their printers slower, or IO theory that shows that a firm makes more money renting than from selling, and thus there are potential welfare losses from such scenarios. Not to mention all the questions of innovation and pricing of information.

And finally, there may be quite rational reasons for strikes, that depend on incomplete information, though admittedly, the theory has yet to be come up with a definitive model of two person bargaining that does have delay.

Friday, November 04, 2005

So the Dalai Lama has descended on Stanford with much fanfare and sellout venues. My friend Amita happened to have tickets, and invited me to go, I went, not really expecting much, but more as a chance to see a celebrity. In the end, I was quite impressed.

For whatever reason, I found myself agreeing with everything he said. I had four hypotheses as to why.

Chinese/Confucian/Taoist/Buddhist legacy of my upbringing.

Just a generally sensible upbringing

The New-Agey, post-hippy, political correct, California culture that I live in today

The Lama is hitting upon some universal truths.

So today, he outlined a very compelling philosophy, that resonated very well with how I viewed the world.

The purpose of all living things is to seek happiness and ease suffering.

Humans are different than animals because they have mental faculties and intelligence that facilitate this purpose.

We should embrace science for effectively solving much of our material suffering.

But material well being is not a sufficient condition for happiness. We should have affection for our fellow man, but at the same time not let affection divide. We should treat all humanity as one body.

It is easy to be tempted by negative thoughts. Strive for positive thoughts

Have respect for all faiths and systems of beliefs. Be moderate and do not judge.

I agree very much with all of these ideas. However, I then began to wonder about how practical they are. How helpful are they for changing people’s ideas, how I raise my children one day. I added a fifth hypotheses about why they resonated so well, which is they are just so vague and general, so “motherhood and apple pie” that of course you agree, but not necessarily deep. A McDonalds version of spirituality, you can have it your way (or Burger King), easy spirituality. He told us to meditate analytically, but didn’t have direction as to how; it doesn’t matter. There was something nice about 7000 people in a stadium in complete silence for 5 minutes, lost in thought, but also something unstructured and easy about it too.

But in the end, the Lama has a whimsical winning personality, and in Q+A was quite amusing and surprising. He basically talked about the unity of religious and spirituality; how he lectures Christian priests about God. An odd but interesting question, “Would you favor genetic engineering of people that removed desire and thus remove suffering?” His answer was surprising. I would not favor, only because the experimentation would be painful and cruel. But if science could eliminate desire and remove suffering (ala soma) he would be all for it. He also freely admitted the primacy of science over Buddhist texts, lamenting how he wasted so much time memorizing Buddhist cosmology when now we know from modern physics that all that was nonsense.